Globalisation, outsourcing and productivity Rachel Griffith UCL, Institute for Fiscal Studies

What have we learned? Increased trade in business services (including R&D) Major structural change in UK and US economies: increased outsourcing of business services (including R&D) and growth in international trade in “non-tradable” services 40% of UK job growth over in business services UK multinationals carry out around 50% of innovative activity offshore Impact on UK productivity Evidence suggests, and there are many reasons to believe, that this has had beneficial impact on productivity improved incentives of suppliers to innovate returns to scale and scope ability of firms to tap into new technologies and flexibility to respond Policy concern Nonetheless there remains policy concern of declining rates of innovation investment in the UK

What are we investigating? Where are firms locating innovative activity? New data on location of European multinational firms world-wide activity The data show a lot of variation - both across countries and industries, and across firms within the same country or industry What are the factors influencing this choice? What role do different types of policies play? Labour market policies, product market policies, taxation, competition policy,... Important to use firm level data, and allow for heterogeneity in responses What impact on activity at home? Firms that increase innovative activity abroad also tend to increase it at home Are these activities complementary? Do firms become more productive in R&D when they operate across different locations (returns to scope/scale in R&D)? What are appropriate policy responses?